Thursday, April 12, 2012

In 2008, Howard Schultz, the president and chairman of Starbucks, made the unprecedented decision to return as the CEO eight years after he stepped down from daily oversight of the company and became chairman. Concerned that Starbucks had lost its way, Schultz was determined to help it return to its core values and restore not only its financial health, but also its soul. In Onward, he shares the remarkable story of his return and the company's ongoing transformation under his leadership, revealing how, during one of the most tumultuous economic times in history, Starbucks again achieved profitability and sustainability without sacrificing humanity. Offering readers a snapshot of a moment in history that left no company unscathed, the book zooms in to show, in riveting detail, how one company struggled and recreated itself in the midst of it all. Onward is a compelling, candid narrative documenting the maturing of a brand as well as a businessman.

Commentary

I have never actually tasted a Frappuccino, but, after reading Onward, by Howard Schultz, I am tempted to try it out the next time I am in the vicinity of a Starbucks. Onward is the story of how Howard Schultz came back to turn Starbucks around after its plummeting performance in 2007, the year in which the company's stock dropped 42 percent. A deeply personal account of the day-by-day deliberations, decisions and consultations that led up to Schultz's decision to remove the then CEO, Jim Donald, and reposition himself in the driving seat, and everything that followed up until late 2010, when Starbuck's was enjoying its "best financial performance in its almost 40 years history" with stock prices up 400% in two years, is compelling reading. Written in an easy narrative, sharing dilemmas, challenges and aspirations, this is Schultz's second book and continues the story of both Starbucks the company and Starbucks the man through all their different facets.

Building a Different Kind of Company

Schultz created the Starbucks of today when, in 1987, at the age of 34, he bought the Seattle-based Starbucks Coffee Company for $3.8 million, "determined to create a different kind of company… which would act through a lens of social consciousness". The original Starbucks sold coffee beans and ground coffee. Schultz had created a small chain of coffee bars modeled on the Italian coffee shop tradition. The new Starbucks was a blend of both.

Ultimately, for Schultz, coffee is a way of bringing people together. Starbucks' stores are a place for people to connect. The "Starbucks Experience" creates personal connections. "We are all hungry for community", writes Schultz. When, in 2007, seven years after Schultz had stepped down from the role of CEO to become Chairman, with a mandate to guide Starbucks' international expansion strategy, Schultz began to perceive that profit considerations and non-core opportunities to sell music, food, books, movies and more, were weakening the positioning of Starbucks in the U.S. market, moving the Company away from the true coffee-flavored soul of the business. Schultz wrote a memo, sharing his concerns at this mission drift. The memo, which was to become known as the "Commoditization of the Starbucks Experience", was designed for internal distribution but, when leaked to the press, it created a public debate about the essence of Starbucks and its strength as a business and role in society. In many ways, this was a catalyst for new insight about the relevance of Starbucks and its future path.

Transforming Starbucks

The revitalization of Starbucks was ultimately to rest on a "Transformation Agenda", propelled by Howard Schultz, which was framed around Seven Big Moves, which were:

1. Become the undisputed coffee authority: After the ultimate insult, when a Consumer Report taste test rated Starbucks' coffee behind McDonald's, leaving Schultz "stunned", Starbucks had to regain the upper hand in becoming known as the best coffee sourcer, roaster and brewer. This aspiration led to the decision to shut down Starbucks all over the U.S. for an afternoon in 2008, to spend time retraining 135,000 baristas on how to make great coffee. Apparently it's not as easy as it looks and closing stores to deliver synchronized training of every single employee, was quite an unprecedented and bold act.

2. Engage and inspire our partners: Partners, in Starbucks-speak, are employees. Schultz tells how employees were always given a decent deal at Starbucks, including full health insurance benefits, in a business context in which this was a long way from being the norm. Engaging employees in community service has also been a strong factor in the Starbucks culture.

3. Ignite the emotional attachment with customers: Improve customer service, making it ever more personal. The Starbucks Loyalty Program was to become a big winner. Free wifi also helped. Starbucks' regulars are treated to personal notes from baristas on their coffee cups. MyStarbucksIdea.com invited customers to help make Starbucks better, while social media was jacked up to best-in-class levels, supported by a corporate website that receives 12 million visitors each month. Improved store décor and more added to Starbucks new blend of customer-first thinking. A change in advertising strategy got the message out with greater clarity.

4. Expand global presence: With less than 1 percent of the global coffee market, Starbucks had to make itself relevant in other countries and exploit great growth opportunities. China became a target market and localized innovation even included specialties such as Black Sesame Green Tea Frappuccino.

5. Be a leader in ethical sourcing and environmental impact: Working with Fairtrade and Conservation International, Starbucks needed to strengthen these partnerships in order to gain true value for the company. By 2009, Starbucks was the largest purchaser of Fairtrade coffee in the world. LEED-ification of stores reduced energy and water consumption significantly. Hooking up with Product RED gave Starbucks an additional social benefit by contributing to AIDS HIV relief in Africa.

7. Deliver a sustainable economic model: Returning to pre-crisis profitability, including closure of hundreds of stores, employee layoffs, revamping the entire supply chain and introducing new technologies for store management and communications, plus aggressive cost-cutting in many and varied ways, contributed to Starbucks' increase in operating margins.

Telling the Story

By far, the greatest appeal of this book is the way the narrative is driven by Howard Schultz's personal account of all the dilemmas he faced, combined with insights from Starbucks' employees in letters they sent to Schultz. As CEO, Schultz instituted an "open inbox' policy, whereby employees can write to him and get a response, time permitting. A regional director of operations wrote: "I can't begin to tell you how proud I am to be a partner". A district manager in Canada wrote: "I have absolute faith that fantastic things are ahead." A district manager in California wrote: "You can be sure that the Spirit of Starbucks is alive and well in San Diego!" The ability of Schultz to inspire with a vision of creating emotional connection through the Starbucks brand appears to have worked internally as well as externally.

In addition to sharing insights from employees, Schultz describes in detail the relationships he struck up with mentors, which included Michael Dell of Dell Corporation, and communications agencies, organizational specialists and more. Schultz's knack for hand-picking his own leadership team as well as engaging external specialists appears to have been pivotal in executing the Starbucks' transformation. The blow-by-blow account of the way Schultz put in place the right people to deliver his renewed vision is well worth reading.

Values First

At all times, Howard Schultz takes pains to reiterate the importance of values and the way conflicts were resolved in the organization from a values-based standpoint under his leadership. While this book is clearly written from the Schultz autobiographical perspective, which at times is rather rosy, it is an engaging account of turning around a global business with a sustainability focus. Schultz is not usually the first name that springs to mind when people talk about sustainability visionaries of stature from the business sector – Anita Roddick, Yves Chouinard, Ray Anderson, and Ben and Jerry, and a few others, generally make the list. Schultz doesn't usually figure. However, in Onward, Schultz stands out as a visionary and a person of principle, striving to make his business as relevant and valuable to society and environmentally sustainable as have any of the other business sustainability celebs. Another demonstration of this is the way Starbucks confirms its impacts on society and accepts accountability through the transparent reporting practices of the Company.

There are lessons for CEO's and many others in Onward. It is certainly a gripping, entertaining and worthwhile read.